Compliance November 15, 2005

Court: Beneficiary Choice Invalid if under Duress or Intoxication

November 15, 2005 (PLANSPONSOR.com) - An Illinois federal judge has ruled that a participant's choice of his live-in girlfriend as beneficiary could be tossed out if it can be shown that the designation took place under duress, undue influence, or intoxication from medication.
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Chief US District Judge Charles Kocoras of the US District Court for the Northern District of Illinois ruled that if son Richard Ostertag, Jr. and his mother Deborah Hesek-Ostertag could prove the circumstances of the beneficiary designation, then the designation of the girlfriend would be null.

The benefits would then revert back to the son, making him the last legitimately designated beneficiary, Kocoras ruled.

According to Kocoras’ ruling, the participant, Richard Ostertag Sr., became divorced from Deborah Hesek-Ostertag in 1997. As part of the dissolution of marriage, Richard Sr. agreed to maintain life insurance for the benefit of Richard Jr.

Two years after the breakup, Richard Sr. named Richard Jr. as the beneficiary of his benefits under the Iron Workers’ Mid-America Pension Plan and the Iron Workers’ Mid-America Supplemental Monthly Annuity Fund. However, in March 2005, Richard Sr. executed a new beneficiary designation form naming his live-in girlfriend, Paula Nevers, as the beneficiary of his benefits under both the pension plan and the monthly annuity fund.

Four days after designating the girlfriend, however, Richard Sr. died. According to the court, Richard Sr. died without a will. Nevers and Hesek-Ostertag, on behalf of Richard Jr., filed competing claims for benefits. Nevers asked the court to dismiss Hesek-Ostertag and Richard Jr.’s claim for benefits.

Although the court ultimately denied Nevers’s request, it first rejected Richard Jr.’s contention that Richard Sr. breached his fiduciary duties to Richard Jr. by naming Nevers as beneficiary.

The court also agreed with Nevers that the divorce agreement between Richard Sr. and Hesek-Ostertag only required that Richard Sr. provide life insurance benefits for the benefit of Richard Jr. The agreement did not obligate Richard Sr. to name Richard Jr. as the beneficiary of his pension benefits, the court noted.

The case is Iron Workers Mid-America Pension Plan v. Nevers, N.D. Ill., No. 05 C 3470, 11/10/05.

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